If you have a loved one with a disability who receives Medicaid or Supplemental Security Income (SSI), you may have heard the term special needs trust. But what exactly is a special needs trust, and why might an Alabama family need one?
A special needs trust is a financial planning tool that can allow a person with a disability to have funds available to improve their quality of life while helping preserve eligibility for certain needs-based government benefits.
For Alabama families, that can become especially important when a loved one receives an inheritance, legal settlement or other assets that could affect eligibility for benefits.
“Families often come to us because they want to help their loved one financially, but they are concerned about jeopardizing the benefits that person depends on,” said Lesley Byars, CPA, executive director of Alabama Family Trust. “A special needs trust gives families another option. It allows funds to be managed for the beneficiary while taking their public benefits into consideration.”
Why Would Someone in Alabama Need a Special Needs Trust?
Programs such as SSI and certain Medicaid benefits have financial eligibility requirements. Receiving money directly can potentially affect a person’s eligibility.
Consider a parent who wants to leave an inheritance to an adult child with a disability. Simply leaving the money directly to the child could create unintended consequences if the child receives means-tested benefits.
A special needs trust may allow those assets to be held and administered for the person’s benefit instead.
That is why planning before an inheritance is received can be important.
“We encourage families not to wait until there is a crisis,” Byars said. “Parents, grandparents and other family members can think ahead about how they want to provide for someone with a disability and make sure their estate plans reflect those wishes.”
What Is a Pooled Special Needs Trust?
Alabama Family Trust is a nonprofit organization that administers pooled special needs trusts.
A pooled trust combines the administrative and investment resources of multiple individual trust accounts while maintaining a separate account for each beneficiary.
This structure can give families access to professional trust administration without requiring them to establish and manage a completely separate private trust.
For families, it also means they do not have to place the entire responsibility for managing a loved one’s trust on a sibling, relative or friend.
What Can a Special Needs Trust Pay For?
A special needs trust is designed to supplement—not simply replace—the assistance a beneficiary receives from government programs.
Depending on the beneficiary’s circumstances and applicable benefit rules, trust funds may be used for expenses that improve the person’s health, independence, comfort and quality of life.
Those needs can vary considerably from person to person. They might include certain transportation expenses, technology, education, personal items, recreation or equipment and services not otherwise covered.
Alabama Family Trust also works directly with beneficiaries and families when they request distributions from their trust accounts.
“Our role isn’t simply to hold someone’s money,” Byars said. “We work with beneficiaries and families to help them understand how the trust can be used appropriately and how those resources can help improve the beneficiary’s quality of life.”
Because distributions can affect public benefits differently depending on the circumstances, families should seek guidance before assuming a particular expense can be paid from a trust without affecting benefits.
What Happens If Someone on Medicaid or SSI Receives an Inheritance?
This is one of the situations that frequently leads families to explore a special needs trust.
Imagine that an Alabama resident with a disability receives $50,000 from a relative’s estate. If the money is distributed directly to that individual, it could affect eligibility for means-tested benefits.
Depending on the person’s circumstances and the type of trust involved, establishing an appropriate special needs trust may provide a way to preserve funds for the beneficiary’s future needs while addressing benefit eligibility requirements.
The important point is that families should seek advice as soon as they know an inheritance or other significant asset may be coming.
Waiting until after money has been received can make planning more complicated.
Who Can Benefit From a Special Needs Trust?
Special needs trusts aren’t only for children.
They may be appropriate for people of many ages and circumstances, including:
- adults with intellectual or developmental disabilities;
- people with physical disabilities;
- individuals who receive a personal injury or legal settlement;
- adults who become disabled later in life;
- individuals receiving certain Medicaid services or SSI; and
- families planning an inheritance for a loved one with a disability.
For parents and grandparents, special needs planning can also be an important part of their own estate planning.
Rather than asking only “How much money should I leave?” families should also consider “How should I leave it?”
Do I Need an Attorney to Create a Special Needs Trust in Alabama?
Special needs trusts involve federal and state benefit rules, estate planning and individual financial circumstances. The right solution depends on the beneficiary, the source of the money and the benefits involved.
An elder law or special needs planning attorney can help families understand their legal and estate-planning options. Alabama Family Trust can also explain the pooled trust options it administers and work with families and their professional advisers.
Attorneys, financial advisers, accountants and other professionals can play an important role in making sure the family’s estate plan, beneficiary designations and trust planning work together.
What Is Alabama Family Trust?
Alabama Family Trust is a nonprofit organization serving individuals with disabilities and their families throughout Alabama. The organization administers special needs trusts designed to help beneficiaries preserve eligibility for certain government benefits while using trust resources for supplemental needs.
AFT also serves as a resource for parents, grandparents, caregivers, attorneys, financial professionals and others who want to better understand special needs planning.
For many families, the best time to learn about a special needs trust is before they need one.
“If you have a loved one with a disability, you don’t have to figure all of this out by yourself,” Byars said. “Start asking questions. We can help you understand what a special needs trust does and whether an Alabama Family Trust account may be appropriate for your situation.”
Have Questions About Special Needs Trusts in Alabama?
If you are planning for a loved one with a disability, expecting an inheritance or settlement, or concerned about how assets could affect Medicaid or SSI eligibility, contact Alabama Family Trust to learn more about your options.
Planning today can help protect both important benefits and financial resources for the future.
This article is for general educational purposes and should not be considered legal, tax or benefits advice. Medicaid and SSI rules can be complex and may change. Families should consult appropriate legal, financial and benefits professionals about their individual circumstances.